How The New Housing Initiatives Will Increase Competition For Potential Home Owners In The November BTO Launch

With the General Elections over and the government winning a decisive 70% mandate from its citizens, attention is now shifting back to some of the major issues, including housing initiatives that were announced by Prime Minister Lee Hsien Loong during the National Day Rally earlier in August.

Income Ceiling For BTO Flats Up To $12,000

The biggest change announced was the increase in income ceiling for households to be eligible for BTO flats. The income ceiling, which was previously at $10,000, have now increased to $12,000.

This implies that there are potentially an additional 100,000 households who now qualify to purchase a BTO flat directly from HDB. Previously, these households would have had to purchase a resale flat or a private property.

The obvious impact this would create is the additional demand for BTO flats that this new group of buyers would bring. The question is, how much more would the demand be?

At the income level that they are currently at, it would be safe to assume that households would already have their own homes. At the same time however, households in this specific group could re-enter the market to purchase a more affordable BTO flat while they still qualify.

If we assume 10% of the households within this income bracket would decide to go for a BTO, you will be looking at an extra demand of about 10,000 new units.

The Special CPF Housing Grant

Another key announcement made during the National Day Rally was the introduction of the Special CPF Housing Grant.

The grant helps lower and middle-income families purchase their first BTO flat if it’s a 4-room (or smaller) unit in a non-mature estate.

At a maximum of $40,000 grant, for those with a household income of $5,000 and less, this grant would help Singaporean couples significantly offset the cost of their first BTO flat. For couples earning between $5,000 and $8,000, they are still entitled to the grant, though subsidy would be lower. This grant is on top of the existing Additional Housing Grant (AHG).

Because of this, more first time homeowners who qualify for the grant will now be paying less for their 4-room (or smaller) units at non-mature estate. It would be natural to expect a significant surge in demand for smaller units in non-mature estates.

Bumper Supply of 12,000 Units In the November Launch

On the supply side, it was reported a few days ago that there would be a mega offering of about 12,000 BTO units in the November launch later this year.

This would be the first BTO launch since the new initiatives were introduced. As such, the question some of us may be asking is whether the supply would outstrip the demand? And whether this would cause housing prices to further soften by flooding the market?

Of the 12,000 units available, about 5,000 flats would come from the Sales Of Balance (SBF) exercise. These are leftover units from previous sales launches. Leftover units do not necessarily refer to units that no one wants. Rather, some of these could have been units that were initially bought, but were cancelled midway due to some reasons (e.g. the couple who bought it are no longer getting married).

A Look Back At The May 2015 Launch

5,000 units may seem like a huge exciting number for couples looking to apply for a flat. However, bear in mind that during the May 2015 SBF exercise, a total of 17,052 applicants applied for 5,160 units, or an oversubscription rate of about 3.3 applicants per unit.

Taking out the SBF flats, the remaining 7,000 units to be launched in November would be the new BTO launch. Again, the number appears quite large. However, we need to remember that this is partially because HDB is now combining both the September launch with the November launch. As such, we would expect for some pent up demand to be present.

Looking back to the last BTO exercise in May 2015, we see that there were a total of 15,532 applications for 3,820 units, giving us an oversubscription rate of 4.1 applicants per unit.

Demand To Continue Remaining Strong

Based on a total demand of 32,584 applications in the last BTO launch (of which only 8,980 were met), demand should still be present. When you add that to the fact that more households are now eligible to apply for a BTO flat, and that more financial support would be given to the middle and lower income households, it would be logical to expect the demand for BTO to far exceed supply for the foreseeable future, in spite of the headline figures of 12,000 units being available.